Inspectors Get Inspected

As regulation in the real estate industry continues to grow across the country, Ontario may be looking to introduce a sheriff to regulate the home inspection industry.

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By: Jeffrey W. Lem and Odysseas Papadimitriou2012-11-01

Nary months after having announced a comprehensive public consultation over the Condominium Act, 1998, a key plank of which will be the possible regulation of the province’s condominium property managers, as we reported in the July 2012 issue of Building, Ontario’s provincial government recently announced that it is also undertaking a similar comprehensive public consultation over the potential regulation of the province’s home and property inspection industry.

Although it is not yet a part of most pre-printed realtors’ forms of agreements of purchase and sale, the “conditional upon inspection” clause has become quite ubiquitous in arms’ length residential re-sale deals. A recent online poll conducted by the Toronto Star concluded that almost 40 per cent of all homebuyers “wouldn’t dare buy a house without one.” A telling statistic from the same online poll hints at the probable reason for the government’s recent interest in industry regulation – almost the same number of respondents also noted that they had purchased a home with a “clean” home inspection report, only to discover significant undisclosed defects in the house after closing.

Readers of Building are quite aware that the question of industry competence is not new. Mike Holmes, Canada’s iconic home renovation on-air TV personality, recently wrote in TheNational Post, “I’ve been saying it for years. The home inspection industry is like the Wild West — a lot of cowboys, not a lot of sheriffs.” He elaborates on his lament by noting that “…there are good home inspectors working in the industry. But we need to take the necessary measures that will make sure there are only good inspectors working in the industry. We can’t afford not to.”

Holmes also concludes by advocating that “[t]he rest of Canada needs to get behind this so we’re all on the same page moving forward.” Similarly, Bob Aaron, the prominent and well-respected Ontario real estate lawyer, has been advocating for a number of years for greater oversight in the home and property inspection industry. In a 2009 Toronto Star column, commenting on British Columbia’s then-nascent home inspection licensing legislation, Aaron glowingly endorsed the idea of regulating home inspectors nationwide.

Even if Ontario ultimately passes legislation licensing and regulating home and property inspectors, it won’t exactly be breaking new ground in this aspect of consumer protection. In March of 2009, British Columbia became the first Canadian province to implement mandatory licensing of home inspectors. Alberta followed suit in 2011 and Québec is already ahead of Ontario in the consultation and pre-legislative diligence process. South of the border, just over half of U.S. states currently require that their home and property inspectors be licensed at the state level.

Actually, unbeknownst to many, Ontario already has quasi-governmental oversight of the home inspection industry. A private member's bill in 1994 established the Ontario Association of Home Inspectors as a non-profit corporation “dedicated to enhancing the technical skills and professional practice of home inspectors, and maintaining high professional standards through education and discipline.” While members of the Ontario Association of Home Inspectors can use the “Registered Home Inspector” designation, membership is not compulsory -- inspectors can still legally practice their trade without belonging to the Ontario Association of Home Inspectors, so long as they did not hold themselves out as a “Registered Home Inspector.”

Ontario’s initiative will, as part of a broader consumer protection plan, consult with home inspector associations, consumers, representatives from the real estate sector and other industry stakeholders on mandatory minimum qualifications for home inspectors. The stated government objective of this consultation process is to come up with legislation that would: (1) increase transparency of the profession; (2) ensure a minimum standard of training; (3) improve consistency in home inspections; and (4) enhance consumer protection.

The Ontario initiative seems limited to licensing of home and property inspectors, but in 2002, the Canada Mortgage and Housing Corporation (CMHC) actually commissioned a research report that went one step further. This CMHC research report, now a decade old, considered the benefits of legislating that home inspections be made statutorily mandatory (rather than voluntary) for all resale housing sales. A bold idea at the time, the CMHC report concluded that “[p]re-listing home inspections could benefit sellers, giving them the option of remedying any major problems or adjusting their price” and noted also that “[h]ome inspections are not meant to be used as tools for renegotiation, but this is now often the case. Pre-listing inspections would avoid this problem.” Alas, the CMHC report also concluded (quite accurately in light of the fact that the current government initiative avoids any discussion of mandatory home inspections) that, “unless political interests change significantly, there is no momentum for [mandatory home inspection] to happen. Home inspections are a low government priority…” That said, the consultation process is deliberately amorphous in scope and it is not entirely unimaginable that, since the government is already considering the merits of law reform in this area of consumer protection, the conclusions of the 2002 CMHC report advocating mandatory home inspections might yet see the light of day in the form of legislation.

While it is too early to tell, there does not seem to be any organization-level resistance to the pending government licensing of home inspectors. Anecdotally, there are some concerns that government competency standards will be set so low that many inspectors with sub-standard skills could get an unintended “reputational lift” in the form of government stamp of approval through licensing. Also anecdotally, there are concerns about increasing transaction costs if all home inspectors now have to be qualified and registered, especially in remote and rural areas where licensed home inspectors will be comparatively rare. While increasing transaction costs is always a concern whenever a government imposes a licensing and regulation regime, these supply-side concerns would be more of an issue in the case of the mandatory home inspections considered in the CMCH report. So long as home inspections are not mandatory, then, presumably, any shortage of licensed home inspectors will be countered, at least in part, by purchasers not insisting on deals conditional upon home inspection (or waiving same if they are already in the offer) in those areas where additional costs and delays imposed by the lack of registered home inspectors outweigh the benefits of the home inspection.

As with the Condominium Act public consultation process already underway, there is no set timeline for the home inspection public consultation process, nor are there any promises that legislative reform will necessarily follow. Furthermore, the recent prorogation of Parliament threatens to delay both initiatives, although one would have thought that just because Parliament is not sitting, a public consultation process could proceed relatively unimpeded. Then again, perhaps only the truly naïve believe that much government business will get done during prorogation.

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